Cooperation needed for any European stock release
Stock release efforts designed to ease the oil price would need the cooperation of Europe’s International Energy Agency (IEA) members
“Because US forecourt prices often depend on the supply of imported products and the price of Brent-linked feedstock, any stock-release effort in the West designed to soften gasoline and diesel prices would need the cooperation of Europe’s International Energy Agency (IEA) members. Unlike the US, which keeps crude-oil stocks in its strategic petroleum reserve, European countries hold a mix of crude oil and petroleum products. Commercial stocks of oil products in Europe are less than abundant, with gasoline inventories at a one-year low, according to consultancy PJK International. And the IEA has forecast that global oil demand will rise by 1.1 million b/d, or 1.2%, every year until 2017. In absolute terms this equates to global oil product demand increasing from 89m b/d in 2011 to 95.7m b/d in 2017, according to the IEA’s latest Medium term oil market report.
Strategic stocks in Europe are another matter. Both the IEA and EU have stock-holding rules for their members. The EU obligation is set as 90 days worth of national demand, though for oil-producing countries, the obligation is lower, at 67.5 days. The IEA also obliges its member states to hold 90 days worth of net oil imports. According to IEA figures, around 476m barrels are in publicly-held stocks across the organisation’s European member countries – ample firepower should the agency decide a release is necessary.
Germany, the EU’s largest and strongest economy, holds about 6% of the world’s strategic oil reserves. Of Germany’s 187m barrels of strategic stocks, held by the Erdölbevorratungsverband, 55% are oil products and the rest is crude. This meets Germany’s obligation to hold the equivalent of 90 days of net oil imports and processed volumes of gasolines, middle distillate products and fuel oils. Almost half of Germany’s oil stocks are stored in salt caverns in Lower Saxony, with the remainder held in tank farms throughout the region. By law there must be a minimum of 15-days supply of products held in each region.
Maintaining France’s 107m barrel reserve is the responsibility of industry operators. France’s industry operators have to hold a portion of their stock obligation, either 56% or 90%, through Société Anonyme de Gestion de Stocks de Sécurité, a central stockholding agency. Companies are then responsible for holding the remaining portion and are able to store this alongside their operational stocks.
French oil stocks are mainly diesel and heating oil, reflecting seasonal demand patterns; while gasoline,et fuel and fuel oil are also held. All storage capacity in France is owned by industry operators, and so is mainly placed near refineries.
The UK’s oil stocks, around 4% of the IEA member country’s total according to the Department of Energy and Climate Change (DECC), are held entirely by the industry. There are no restrictions on where stocks can be held: some are placed in other countries’ storage facilities, for example. However, each month, DECC must be told how much is in storage and where it is.
The procedure for initiating a stock release involves a collaborative consultation process between the IEA and member countries. In the event of an oil-supply disruption, the IEA would contact member countries with an initial assessment of the supply risk, outlining the percentage share of crude and products the member is advised to release. If there is a collective call for action, the IEA will issue an Initial Response Plan for releasing a specific volume of oil in the first 30 days of the crisis. If member countries agree to the joint action plan, the IEA issues a notice of activation. Member countries can, however, independently decide if they want to take part and a unanimous decision between all the members is not required for a joint action.